Investment banks have started to review their hiring practices for mainland China in the wake of the Securities and Exchange Commission's investigation of JP Morgan in the country, according to people close to the situation.
The New York Times has reported that the US regulator is probing the bank’s hires of two employees who are from powerful families, relating to IPO deals that JPM advised on.
Although the probe is ongoing and there is no suggestion of wrongdoing, the issue has prompted at least two Europe-based banks to scrutinise their hires from China, upon the request from top-level management, according to people close to the situation.
“We were asked by the management to get a list of people with significant Chinese connections,” said a banker with one of the two European banks who declined to be named.
The other banker said top management did not have an idea of what was actually going on in China’s hiring practice, and now they would like to “have a closer look” at it.
However, sources do not know where this review of Chinese hiring will lead and that management teams are closely watching the JPM probe for an indication of how to proceed.
It is normal practice for large banks to hire the princelings of China’s powerful people. In a country where personal relationships, or “guan xi”, play an important role in business, those people with important connections are always a big catch for domestic or global companies, although it is hard to prove the companies are offering a job in exchange for government business.
However, hiring princelings does not necessarily mean the banks are wrong. The onus is on the accusers to prove banks make the hires with the intention or expectation of getting business in return, and that the people are not competent or qualified for the job.
Some bankers disagree that investment banks hire people with connection in order to exchange deals.
“We need to hire people that are competitive,” said a person familiar with the situation. “The practice is quite opposite [to what people think it to be]. If someone is somehow related to a company, we actually take him/her off the process of the company’s deal completely. These are all implemented in documents internally,” the person says.
There have already been examples of people working for investment banks with close relationships with China’s political families.
Janice Hu, whose grandfather is Hu Yaobang, a former Communist Party General Secretary, works with Credit Suisse; Margaret Ren, whose father-in-law is Zhao Ziyang, a former premier and former General Secretary of the Party, works with Bank of America Merrill Lynch; Jia Liqing, whose father-in-law is Liu Yunshan, the First Secretary of the Central Secretariat of the Party, works with BoA Merrill.
Some media cited these hires as indicators of corruption in China. However, none of the hires were investigated by any authority.
Such hires are not limited to China of course. The daughter and son-in-law of Bill Clinton, the former US president, the son of Mongolia’s premier, and many other famous princelings have worked or are still working for international investment banks.